States must follow Centre’s fuel tax cuts

News: Government has announced lowering excise duties on petrol and diesel as well as offering a subsidy for LPG cylinders.

States must also reduce the taxes on oil. The combined impact of tax cuts will provide much-needed relief to stressed household budgets and small business balance sheets.

Because unlike previous inflationary pressure, that took place along with high economic growth, this time, it has arrived in the backdrop of five years of economic weakness and a pandemic shock.

How has increasing inflation helped government?

A sharp rise in inflation has helped central governments in two ways:

1.) First, buoyant tax collections. GoI’s net tax revenue between April 2021 and February 2022 was almost Rs 3.75 lakh crore higher than what was collected two years ago in a pre-pandemic year.

2.) Second, growth of nominal GDP has outpaced liability of interest on government borrowings.

Similarly, state governments have also benefitted from inflation. The ratio of fiscal deficit to state domestic product in 2022-23 is lower than the cap fixed by GoI for many states.

Source: This post is created based on the article “States must follow Centre’s fuel tax cuts” Published in Times of India on 23^rd May 2022.